U.S. stocks are approaching to recover the declines since the Iran war, while crude oil remains high due to the Strait of Hormuz risk

ME News update: On April 10 (UTC+8), the U.S. stock market is nearing recovery from the drop driven by the “Iran War,” as investors increasingly bet that the geopolitical shock will be short-lived. However, the crude oil market remains more cautious. The two-week ceasefire agreement announced Tuesday evening helped spur a stock market rebound, triggering a “relief rally” that allowed the indices to recoup more than two-thirds of the losses since the conflict broke out in late February. The S&P 500 index is currently less than 1% below pre-war levels (6,878.88 points).

Meanwhile, concerns over Middle East supply bottlenecks continue to keep oil prices at elevated levels. Barclays strategists said in a report to clients: “The stock market’s expectation of ‘a good outcome’ is clearly higher than that of the oil market, and stock indices have significantly outperformed the pullback in oil futures.” They noted that this rebound was partly driven by “strong short covering,” as short sellers were forced to close positions during the rally. Barclays also said that investor confidence in President Trump pursuing an “exit path” to avoid greater economic losses is strengthening. “In our view, further de-escalation remains the most reasonable outcome, because Trump needs an exit plan to deal with rising political and economic costs,” the bank said.

Citi strategists also expressed a similar view, saying that Tuesday’s ceasefire changed market sentiment. “Although many uncertainties remain, the fact that the U.S. and Iran have found an ‘exit path’ is itself a positive signal. Clearly, the route to an agreement will not be a straight line. Investors have substantially reduced their risk exposure, and if the ceasefire basically holds, they may be tempted to add back positions again, which means the rebound could still have room to continue.”

By contrast, the oil market continues to price in a more cautious scenario because tensions around the Strait of Hormuz persist, and key shipping routes remain largely closed. On Friday, U.S. West Texas Intermediate (WTI) crude oil futures for May delivery were close to $100 per barrel, compared with about $67 before the outbreak of the war. (Source: BlockBeats)